28 October 2022

Changes mooted for tenure of independent board directors in Singapore

Singapore Exchange Regulation (SGX RegCo) has opened for public consultation its proposal for a hard nine-year limit on the tenure of independent board directors (IDs) and the removal of the two-tier voting mechanism for long-serving IDs.

If directors want to serve beyond the tenure limit, they must be re-designated as non-independent even if their appointment was approved via a two-tier vote previously, according to the consultation paper.

Feedback is also sought on mandating the disclosure of the actual amount and breakdown of the remuneration of board directors and the CEO of listed issuers on a named basis in the annual report. This will bring disclosure requirements on director and CEO remuneration in line with global standards.

Both proposals follow a review of companies’ disclosures based on the Code of Corporate Governance 2018 that SGX RegCo had commissioned*, as well as a study on long-serving IDs by the Nanyang Technological University**. The Corporate Governance Advisory Committee had in its statement on these findings suggested a tenure limit for IDs and disclosure of the exact remuneration of each director and the CEO***.

The Monetary Authority of Singapore already imposes a hard nine-year tenure cap on IDs of Singapore-incorporated banks, insurers and managers of real estate investment trusts (REITs). SGX RegCo has suggested that companies be given a one-year transition period to find suitable ID candidates before the hard tenure limit becomes effective.

“Many companies have used the two-tier vote to retain long-serving directors instead of taking a longer-term view to enhance the independent element on boards. Remuneration disclosures have also been disappointing. Shareholders deserve greater board accountability and transparency. With the proposed rules in place, board renewal will take place at a faster pace, and how remuneration compares with company performance will be better understood,” said Tan Boon Gin, CEO, SGX RegCo.

The public consultation will close on 17 November 2022 and can be found at https://www.sgx.com/regulation/public-consultations.

*The independent review of companies’ disclosures by KPMG in Singapore evaluated information in annual reports and company websites based on the 2018 Code of Corporate Governance. The report is found here.

**The Study of the Implementation of the Nine-Year Rule for Long-Serving Independent Directors by Associate Professor Victor Yeo of Nanyang Business School, Nanyang Technological University, is found here.

***The Corporate Governance Advisory Committee’s statement on the review of companies’ CG Code disclosures is here.